For the better part of two decades, there has been a pervasive view amongst the public and legal community that student loan debt is largely not dischargeable in bankruptcy. However, over the last few years, there has been case after case where federal bankruptcy judges are becoming more permissible with student loan discharge. And, with recent moves by the current administration, borrowers may find student loan discharge in bankruptcy a possibility.
Most recent cases
The most recent case to discharge student loans that hit the news is Wolfson v. DeVos. In that case, the federal bankruptcy judge discharged about $100,000 in student loans.
Why the discharge was allowed
The 35-year-old man presented evidence to the bankruptcy judge that since he graduated from college, he was never able to find gainful employment. Indeed, until a recent auto accident that totaled his car as a result of a seizure, he worked full-time in the gig economy. This meant his financial situation was likely to change in the future. As a result, the judge found that the student loans were an undue hardship. The Department of Justice and Education have also agreed not to appeal this decision.
The undue hardship test
The finding of undue hardship is needed to discharge student loan debt because of the Bankruptcy Abuse Prevention and Consumer Protection Act, which passed in 2005. The Act created the undue hardship standard, whereby borrowers must prove that they cannot maintain a minimal standard of living, while repaying their student loans. In addition, they most prove that they have both already made a good-faith effort to pay back the loans, and that their financial circumstances will not likely improve in the future.
The key takeaways
Our Mobile, Alabama, readers fighting student loan debt likely read this blog gleefully. Though, please keep in mind that the number of times student loan debt is discharged pales in comparison to the times it is not discharged. After all, that is why it makes the news cycle. Nonetheless, with the DOJ and DOE indicating their willingness not to appeal, and the increasingly expansive view by the federal judiciary, the chances of discharge have likely never been higher than pre-2005.
